With the release of a new S-1 filing on Monday morning that has its initial price range for its stock at $31 to $34 per share, Reddit IPO plans are beginning to unfold.
It’s valuation would be around $5.4 billion if investors go for its high end range. Based on an expected 158.98 million shares debt, the company would be worth $4.93 billion. Some estimations suggest a potential valuation crossing the $6 billion mark when factoring in other options held by employees or other parties.
Nevertheless, it is believed it will be a public company crossing the $5 billion mark. This is a sort of Mendoza line for Reddit considering the indicators given by its secondary market trading activity prior to its IPO filing.
With revenue of $804.0 million in 2023, Reddit is expected to be valued at around 6.9 to 8x its revenue, depending on the valuation estimate. This value could increase further if investors are willing to pay more than $34 per share during its roadshow.
Because Reddit hasn’t made a profit yet and has been around for a while, and because it relies on advertising, its price seems a bit high. For comparison, Snap, which also hasn’t made a profit, is valued at 4.34x its revenue, while Meta, which is very profitable, is valued at 9.86x its revenue.
Reddit pricing is closer to Meta than Snap because of of its plan on AI.
What the company said in a statement;
The company said it’s in its early stages of monetization in data licensing arrangements. Its entered into certain data licensing arrangements with contract value of $203 million in the space of 2-3 years. Reddit expects a minimum of $66.4 in the year ending in December as they believe their platform will be a key element in the training of leading large language models (“LLMs”);
We are also in the early stages of monetizing our emerging opportunity in data licensing by allowing third parties to access, and search. And analyze data on our platform. In January 2024, we entered into certain data licensing arrangements with an aggregate contract value of $203.0 million and terms ranging from two to three years
We expect a minimum of $66.4 million of revenue to be recognized during the year ending December 31, 2024. And the remaining thereafter. Reddit data constantly grows and regenerates as users come and interact with their communities and each other. We believe our growing platform data will be a key element in the training of leading large language models (“LLMs”) and serve as an additional monetization channel for Reddit.
Reddit said
Although this contract did not disclose the buyer, it is known that OpenAI CEO Sam Altman holds an 8.7% stake in Reddit, making him the third-largest shareholder. Additionally, he was previously a member of the company’s board of directors.
Reddit is a valuable source of training data that large language model AI companies are in need for. The company has also shown that it can use its valuable training to generate money from AI companies.
Some Reddit users are not okay with the collaboration with AI but those worries are insignificant compared to the incoming revenue Reddit could see from its data licensing.
Even though Reddit’s primary business does not involve creating AI models, investors see the company as a good investment in the field of AI. As the company continuously gathers data, it speaks well for its future.
